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Euro zone economy shrinks in Q2

Brussels, August 15, 2012

The euro zone's debt-ravaged economy shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out.

The 17-nation currency bloc contracted by 0.2 per cent on the quarter, data showed yesterday.

Germany eked out growth of 0.3 per cent, but its forward-looking ZEW sentiment index slid for a fourth month running.

Economists said worse is likely to come and the Europe's largest economy is unlikely to defy gravity for long unless decisive action is taken to tackle the crisis.

'The German economy could contract in the summer. It is fundamentally in good structural shape, but can't decouple from the recession in the euro zone, plus the global economy has also shifted down a gear,' said Joerg Kraemer at Commerzbank.

For France, it was the third consecutive quarter of zero growth. The central bank has said it expects a mild contraction in the third quarter.

ZEW's monthly poll of economic sentiment slid to -25.5 from -19.6 in July and economist Christian Dick said the German economy would slow due to weak growth in its main export markets, but would not deteriorate sharply.

Austria and the Netherlands almost matched Germany's performance, each posting growth of 0.2 per cent. But Finland, pushing for austerity, suffered a 0.7 per cent year-on-year fall in GDP.

Bailed-out Portugal's recession deepened with GDP diving by 1.2pc on the quarter and Cyprus contracted by 0.8 per cent.

Deficit-cutting measures shrank Greece's economy 6.2 per cent year-on-year in the second quarter, while Italy's second quarter data earlier showed the economy contracted 0.7 per cent quarter-on-quarter, compounding difficulties to avoid a bailout.

Spain's economy shrank 0.4pc over the same period, pushing it deeper into recession.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said the EU and European Central Bank were ready to act if needed to shore up the bloc.

The big unanswered question is whether a weakening economy will make Germany, the EU's paymasters, less likely to support government rescue efforts for the broader euro zone.-Reuters

Tags: economy | Germany | Euro zone |

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